Macro Economics

  • 06.03.11

    What Happens When The Government Tightens Its Belt? (Part II)

    In this article Stephanie Kelton describes the relationship between the government, the private sector, and foreign entities. She describes that when you look at these three players in the economy, one entity's purchase is another entity's sale. Therefore, any surplus for one entity equates to a deficit for anoth...

    In this article Stephanie Kelton describes the relationship between the government, the private sector, and foreign entities. 

    She describes that when you look at these three players in the economy, one entity's purchase is another entity's sale. Therefore, any surplus for one entity equates to a deficit for another. In more simplistic terms: wen we have a trade deficit and are importing in more goods than we are exporting, that means that when compared to us foreign entities are exporting more goods to the U.S. than they are importing from the U.S. 

    Kelton specifically points out that the government has a role to play to offset the trade deficit that this country has because, "Whenever the government’s deficit is too small to offset a deficit in the current account, the private sector will experience a net loss."

    She concludes that: "the Government needs to loosen its belt when we tighten ours. If it doesn’t, then millions of us will lose our [jobs]."

    Kelton Figure 2 (Part 2)

  • 03.27.11

    What Happens When The Government Tightens Its Belt?

    In this article Stephanie Kelton describes the interaction between the government and the private sector in regards to spending and saving. Kelton describes that there is a direct relationship between what is happening in the private sector and what is happening in the public sector - " the total amount of money s...

    In this article Stephanie Kelton describes the interaction between the government and the private sector in regards to spending and saving.

    Kelton describes that there is a direct relationship between what is happening in the private sector and what is happening in the public sector - " the total amount of money spent buying newly produced goods and services will yield an equivalent income to the sellers of these products." Meaning that someone's purchase is another person's sale and vice versa.

    The government both collects taxes, and spends money (from salaries for government workers to social programs). Kelton demonstrates that when the government runs a surplus, meaning that it is bringing in more money than it is spending, that money is removed from the private sector.  She finishes with the statement "As the government “tightens” its belt, it “lightens” its load on the teeter-totter, shifting the relative burden onto you."

    Kelton Figure 4